Thursday, June 15, 2017

OPINION | Germany and the Qatar Crisis

Within a week of Bahrain, Egypt, Saudi Arabia, the United Arab Emirates (UAE), and other governments of Arab/African countries severing/downgrading relations with Qatar, German Foreign Minister Sigmar Gabriel warned that “this dispute could lead to war”, referring to the Sunni governments’ “dramatic” harshness regarding Doha. Germany’s top diplomat stated that he had conferred with officials in Qatar, as well as in Kuwait, Iran, Saudi Arabia, and Turkey, with the aim of defusing the beleaguered Middle East’s latest crisis. After Qatar’s Foreign Minister Sheikh Mohammed bin Abdulrahman Al Thani traveled to Germany to meet with him on June 9, Gabriel called for “solutions, especially lifting the sea and air blockades.” The Foreign Minister’s defense of Qatar during the ongoing Gulf Cooperation Council (GCC) diplomatic crisis speaks volumes about the European country’s relations with the Arab Gulf emirate, a rapport long ignored by foreign policy analysts.

Germany developed diplomatic relations with Doha in 1973. Unlike Great Britain and France, Germany had no colonial past in the Middle East that would have created enduring political, economic, energy or security ties. Nonetheless, bilateral relations have developed steadily since the beginning of the 21st century. This analysis examines that growth, beginning in 1999 when a Qatari monarch made his first visit to Germany and explores the trends and important characteristics of the present-day Berlin-Doha relationship.

From the establishment of the GCC in 1981 until 2001, the six Arab Gulf states played somewhat insignificant roles in Germany’s economic and foreign policy. In fact, in 1999, the German Foreign Office had plans to shut down certain diplomatic missions in the GCC, including its consulate in Jeddah. In Doha, the mission had not been functioning effectively for a long time due to inadequate resources.

The terrorist attacks of September 11, 2001, however, prompted Berlin to step up investment in its Gulf state diplomatic missions. During that period, visits of high-ranking German politicians to the region began to increase. In 2001, German President Johannes Rau traveled to Qatar, followed a year later by then-Prime Minister of Lower Saxony Sigmar Gabriel. In 2005, Gerhard Schröder, accompanied by a comprehensive business delegation, became the first German chancellor to visit Doha. An ensuing security agreement, albeit largely symbolic, led to a German federal police official serving in Doha as a document and visa consultant. In addition, Germany provided Qatari coastal guards with training to protect the emirate’s coastal waters. Cooperation in counter-terrorism and intelligence spheres and coordination of regional policy initiatives continues today.

That said, stronger German-Qatari military cooperation created controversy within Germany’s parliament shortly after the public learned that Doha had purchased 62 Leopold II tanks from Germany. Regulations on arms deliveries to so-called “areas of tension” require the approval of the national security council. The Qataris argued that deeper military cooperation would enhance bilateral relations overall, yet scores of German politicians had difficulty justifying their country’s sale of weapons to the Arab Gulf state, due to sensitivities surrounding human rights allegations.

Today the German Foreign Ministry website states: “Qatar’s strong engagement in foreign policy....makes it an important partner for Germany on different regional political issues.” The two countries’ shared interests include the promotion of peace and stability in the Middle East, the stabilization of world energy prices, and the fight against international terrorism with the aim of securing international shipping routes and free trade. Germany and Qatar take a mutual interest in each other’s views of regional developments. For example, both countries work closely together within the Friends of Syria Group. Germany initially improved relations with Qatar in search of partners in the region other than Saudi Arabia. Qatar became a promising candidate after its 2005 announcement of internal political reforms, a development that Berlin regarded positively. Another factor was Qatar’s relations with Israel – the security of Israel is part of Germanys “raison d'état” – and its pragmatic relations with Iran.

Qatar considers Germany an exceedingly important actor in the West. Despite Berlin’s reluctance to pursue a more aggressive Middle East foreign policy, its economic clout in the region has grown in recent years. Berlin is set to pursue a more active foreign policy vis à vis the Arab world and Iran. Germany, together with other European countries, can help Qatar become less dependent on the U.S., although there is no perception of Berlin having the means, or the interest, to replace Washington as Qatar’s security guarantor. Qatar’s interest in becoming further embedded in German security and intelligence networks is indicative of Doha’s strategic pivot to Berlin and other capitals such as Moscow, Tehran, and Ankara to diversify its security and political partnerships.

An important issue for Qatar and other GCC members is Germany’s role within the P5+1 group. The six world powers negotiated the watershed Joint Comprehensive Plan of Action (JCPOA), commonly referred to as the Iranian nuclear deal, which Germany, Iran, and the UN Security Council’s five permanent members passed in mid-2015. Whereas some GCC states confirmed their official support (lukewarm at best) for the JCPOA, Doha sincerely supported the historic accord’s passage, has long called for a peaceful and diplomatic settlement to the standoff over Tehran’s nuclear program. The emirate shares the world’s largest offshore gas field with Iran, and promoting a stable Gulf region and decreasing tension in GCC-Tehran relations are foreign policy objectives for the leadership in Doha.

German-Qatari relations have certainly improved in recent years and diplomatic visits on political levels have become routine. Yet since Angela Merkel became Chancellor of Germany 11 years ago, she has visited Qatar only once. German authorities find it difficult to maintain a close working relationship with their Qatari counterparts, as most government decisions in Qatar come top-down. Hence, a traditionally strong hierarchy in Qatar constitutes an obstacle to follow-up activities on agreements arranged by top officials.

Economic Relations

Throughout the GCC, Germany’s high-quality products and services have contributed to its positive image. Knowledge transfers through joint ventures between Qatari and German companies can help achieve the Qatari National Vision 2030 goal of building a strong private sector based on a knowledge-based economy and society.

Until 2000, bilateral trade and investment figures had been marginal. This changed rapidly when Qatar began investing massively in its local infrastructure. (By 2022 Qatar expects to invest about USD 200 billion in infrastructure.) In 2002, a German Business Council was established in Qatar and, around the same time, an office of the German Industry and Commerce Office was opened in Doha. Since 1999, an Investment Promotion and Protection Agreement, as well as an Air Transport Agreement, have been in force. A German-Qatari joint economic commission was founded in 2007 and met for the fifth time in 2016.

Negotiations over a double taxation agreement, however, have not yet been finalized. Officials in Doha maintain that this issue hinders their willingness to invest more in Germany while also lamenting the small proportion of German foreign direct investments in Qatar. Their counterparts in Berlin, on the other hand, are not willing to agree to a tax-free repatriation of Qatari investments in Germany.

Against this backdrop, Germany has been able to attract Qatari investments in recent years valued at more than USD 18 billion. Qatar holds stakes in Volkswagen, Hochtief, Siemens, Deutsche Bank and others. The German government has welcomed Qatari investments, particularly during the financial crises of 2008/09, when the Qatari sovereign wealth fund, Qatar Investment Authority (QIA), bought stakes in many European banks, including Barclays, Santander, UBS, Credit Suisse and Deutsche Bank. On the occasion of the 2013 Business and Investment in Qatar Forum in Berlin, attended by then-Qatari Prime Minister Hamad bin Jassim Al Thani, as well as Chancellor Merkel and other dignities and businessmen from both sides, the QIA announced its decision to further invest in Germany.

Bilateral trade is constantly on the rise, having reached a record high of USD 2.87 billion in 2015. Approximately 1,700 German citizens lived and worked in Qatar in 2013 (but only 25 percent of the number of German nationals in Dubai). Sixty-four German companies are present in Doha, most of which are active in the construction and service sectors, amounting to a major increase since 1999, when there were only two.

Politicians from both countries regularly stress the potential opportunities that increased bilateral trade and investment could provide. Yet there are many factors thwarting a strengthening of economic ties.

It is important to differentiate between internal and external factors. External factors include a somewhat inefficient Qatari jurisdiction, a highly competitive market, and the huge scope of Qatari projects, especially in the infrastructure sector. Moreover, the lack of access for most foreign companies to local financing is a problem. Eighty percent of the Qatari economy is completely, or partially, state-owned. Major projects are tendered by procurement offices and are often bound to political guarantees. Foreign companies must pay not only tender bonds but in many cases performance bonds. Without local financing opportunities, most German companies cannot survive in the Qatari market. This is especially true for small and medium size businesses (SME), which comprise 90 percent of all German businesses. For this reason, with a few exceptions, German companies work mainly as sub-contractors in Qatar.

The main internal factors are relatively high-cost structures within German companies, a conservative risk allocation, as well as almost no representation inside local Qatari companies, let alone Qatari government institutions. The latter is important since the Qatari business culture is based on trust and characterized by personal relationships. Therefore, national consultants can act as “door openers”.

In addition, most German companies deliver products or services. With the exception of Siemens, Thyssen-Krupp, and a few others, there are no Qatari-German joint ventures. This is especially true in the oil and gas sector, including downstream businesses such as petrochemicals. Wintershall, which left the market in 2010, was the only German company to be heavily invested in the Qatari energy sector. Even though the situation has changed today - especially since the Russian-Ukrainian conflict, Germany is more willing to reduce its strong dependency on Russian gas and look for alternative sources - there are almost no capacities left for the German market. The problem is that the Qatari LNG output is linked to long-term contracts with Asian countries such as Japan, South Korea, and China.

Culture, Education, Science, Sports, and Technology

A German International School that stresses cultural competence was established in Doha in 2008. In the medical sector, there is cooperation between the Hamad Medical Corporation and the University Hospital of the Johann-Wolfgang-Goethe-University Frankfurt. Leading German museums and The Dresden State Art Collections are collaborating with Qatar Museums (QM). Germany and Qatar have also developed closer relations in the sports sector, as highlighted by the summer camp for FC Bayern Munich in Qatar and the many German employees who helped build the Aspire Sports Academy. Currently, a bilateral cultural year is in place.

Both countries are willing to invest in the education and science sectors, with a focus on research and development in the field of new technologies such as renewables. In her 2010 speech at the Museum of Islamic Art in Doha, Chancellor Merkel stressed that Germany and Qatar are “global front-runners” in this area.

Conclusion

Bilateral relations between Qatar and Germany have steadily improved since 2005. One obstacle to the relations from a strategic point of view is a lack of security and energy cooperation. Whereas commercial interests on both sides had been the main driver of German-Qatari relations until 2011, Qatar’s rise as a political player in the Middle East and its active role in the “Arab Spring” made the emirate a key political partner for Germany and the rest of the EU. Yet the accusation by the German development aid minister that Qatar was financing Daesh (“Islamic State”), as well as the negative German press coverage of labor conditions for expatriates in Qatar, have represented challenges for the Berlin-Doha relationship. Nonetheless, Merkel has called Doha a “strategic partner” and claimed that she has no reason to mistrust the Emir of Qatar’s reassurance that the Qatari government has never been behind the financing of terrorism.

Germany’s participation in the P5+1 talks, as well as Chancellor Merkel’s historic decision to welcome more than one million Syrian refugees, clearly indicate a more active German foreign policy in the Gulf and the greater Middle East. One could argue that both countries have experienced an emancipation within their regions (EU, GCC). Germany is now Europe´s economic powerhouse and has played a major role in stabilizing European markets during the aftermath of the 2008/2009 financial crisis. Qatar has developed a more active foreign policy and in 2011 became one of the Arab world’s major players amid political openings caused by numerous anti-regime revolts and rebellions. Moreover, the emirate has helped stabilize European banks and is heavily invested in European companies. This factor makes Doha essentially a natural partner in many regards for the future.

Ultimately, Qatar needs Germany as part of its strategy to maintain good relations with key Western countries. Germany, in turn, sees Qatar as an important “piece of a puzzle” in an extremely complicated and volatile region. The leadership in Berlin values Qatar as a bridge between the Islamic and the western worlds, which can help to secure German and other European countries’ interests in the Middle East and beyond. According to diplomatic sources, Qatar’s Emir Sheikh Tamim is scheduled to visit Merkel in Germany after Ramadan. That meeting should provide a better indication of possible increased momentum in German-Qatari relations at a time when Doha requires additional support from major players in the global arena.

About the Author:

Jeremias Kettner (@KettnerJeremias) is an analyst at Gulf State Analytics with a background in business and government relations across Europe and the Middle East.